Question

Study the following case: STAR Company Ltd. has recently come out with its public offer through FPO. Their issue was oversubscribed. The Board of Directors now wants to start the allotment process. Please advise the Board on: (a) Should the company set up allotment committee? (b) How should the company inform the applicants to whom the company is allotting shares? (c) Within what period should the company issue share certificate?

Hint:

For any public issue (IPO or FPO), remember the key principles are fairness, transparency, and compliance with SEBI and the Companies Act. The process involves a dedicated committee, clear communication to all applicants, and strict timelines for allotment and refunds.

Answer 1

Analysis: The case deals with the post-issue formalities for an oversubscribed Follow-on Public Offer (FPO). The Board of Directors needs guidance on the correct procedures for share allotment. Advice to the Board:

[(a)] Allotment Committee: Yes, it is highly advisable and a standard practice for the Board of Directors to constitute a 'Share Allotment Committee'. This committee, comprising some of the directors, is responsible for overseeing the entire allotment process. They work with the merchant bankers and registrars to finalize the basis of allotment in a fair and transparent manner that complies with SEBI regulations. This ensures proper governance and efficient decision-making.
[(b)] Informing Applicants: The company must inform the applicants through a formal "Allotment Advice" or "Letter of Allotment". This is sent via email and SMS to the registered contact details of the successful allottees. For applicants who were not allotted any shares, a "Letter of Regret" along with the refund order is sent. The final allotment list is also made available on the websites of the stock exchanges (BSE/NSE) and the registrar to the issue.
[(c)] Issuing Share Certificate: As per the Companies Act, 2013, in the case of allotment of any of its shares, the company must deliver the certificates of all shares allotted within a period of two months from the date of allotment. However, in modern practice where shares are allotted in dematerialized (Demat) form, the shares are directly credited to the allottees' Demat accounts much faster, typically within a few days of allotment.